TaxTMI 
TaxTMI 
2004 (12) TMI 303
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....nt was completed on 15th Nov., 1999, determining the undisclosed income at Rs. 21,79,160 and the tax payable at Rs. 13,07,496. The AO further levied penalty under s. 158BFA(2) of the Act of Rs. 10,44,600, i.e., an amount equal to the amount of tax payable under block assessment. The assessee was unsuccessful before the CIT(A) and is in appeal before us. 3. Before us, the learned counsel for the assessee vehemently argued against the imposition of penalty in the facts and circumstances of the case and in the light of the provisions of s. 158BFA(2) of the Act. Subsequent to search proceedings in the premises of Shri Ambalal Shankarlal, the factor of the assessee, the assessee was asked to file the return of income under the block assessment scheme under s. 158BD of the Act. The assessee complied with the notice and filed a return declaring an income of Rs. 21,00,525. During the course of the assessment, the AO made two additions viz., Rs. 30,000 as unexplained marriage expenses and Rs. 48,635 being the difference on account of certain clerical mistake based on which the assessee had filed the return. The AO left a note in the assessment order in respect of levy of penalty under s.....
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....e burdened with such vicarious liability without the sanction of the clear provisions of law in this regard. Our attention was drawn to the principles laid down by the Rajasthan High Court in Suresh Bhai Bhola Bhai Jani & Anr. vs. Union of India (2000) 172 CTR (Raj) 398 : (2001) 249 ITR 363 (Raj). 4. The learned Departmental Representative, on the other hand, drawing our attention to the proviso to s. 158BFA(2), pointed out that the assessee has not satisfied all the conditions laid down in the said proviso. Therefore, by implication the assessee is liable for penalty under s. 158BFA(2), the AO has levied the minimum penalty prescribed under the statute and strongly justified the imposition of the said penalty in the light of the provisions of the law and in the light of the discussions in the two impugned orders. 5. We have carefully and anxiously considered the rival contentions and gone through the records. The provisions of s. 158BFA(2), which are the cause of the controversy are reproduced hereunder: "Sec. 158BFA(1): Where the return of total income including undisclosed income for the block period, in respect of search initiated under s. 132 or books of account....
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....orily implemented. In order to satisfactorily and effectively implement their provisions, penalties are generally provided for in all taxation laws. Without such a sanction, there is the danger of the evasion of tax. Thus, provision for levy and collection of penalties for contravening their requirements has become an integral part of such enactments. It has now been well recognised that a provision dealing with penalty must be strictly construed. Penalties are to be construed within the term and language of the particular statute. Penalty provision should be interpreted as it stands and in case of doubt in a manner favourable to the taxpayer. If the Court finds that the language of a taxing provision is ambiguous or capable of more meanings than one, then the Court has to adopt the interpretation which favours the assessee, more particularly so, where the provision relates to the imposition of penalty. Useful reference may be made in this regard to the observations in the decisions in CIT vs. Vegetable Products Ltd. 1973 CTR (SC) 177 : (1973) 88 ITR 192 (SC), C.A. Abraham vs. ITO & Anr. (1961) 41 ITR 425 (SC), Braja Lal Banik vs. State of Tripura (1990) 78 STC 283 (Gau), CIT vs. P....
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....x payable on the basis of such return has been paid or, if the assets seized consist of money, the assessee offers the money so seized to be adjusted against the tax payable; (iii) evidence of tax paid is furnished along with the return; and (iv) An appeal is not filed against the assessment of that part of income which is shown in the return. In other words, it gives the situations and prescribes the circumstances under which penalty shall not be levied. The AO, the CIT(A) and the learned Departmental Representative are trying to canvass that if these circumstances are not satisfied cumulatively, the assessee is automatically levied with penalty, which proposition cannot be accepted in the light of the principle laid down by the Supreme Court and followed by every High Court while dealing with penalties and the provisos dealing with penalties. The legislature, in our view, has not prescribed the circumstances under which the penalty has to be levied. It has only said the circumstances under which no penalty is leviable. That does not mean that in every other circumstance the penalty is automatic and has to be levied. We should not forget that the words used in....
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....e clean before the Department. Therefore, after appreciating these things, we read down the provisions and are of the opinion that the AO has miserably failed in not exercising the discretion in favour of the assessee considering the fact that the assessee has just delayed the filing of the return by a fortnight. The conscience of the AO should have tilted in favour of the assessee who has co-operated with the Department in getting the undisclosed income assessed to tax at a higher rate of taxation, than under the normal Finance Act. Instead, the AO used the discretion against the assessee in imposing the penalty, which according to us, is unreasonable and as we have already explained, even on merits, the penalty is not sustainable. We appreciate the efforts made by the assessee's counsel to bring to our attention the possible harassment the AO can cause to the taxpayers for want of necessary provisions in this regard for imposition of penalties under Chapter XIV-B. We, therefore, even on merits do not agree with the imposition of penalty. The same stands cancelled. 10. Before parting, we would like to deal with the Full Bench decision of the Andhra Pradesh High Court in the....